Nick Train is one of the most respected money managers in the UK and it isn’t hard to see why. The Finsbury Growth and Income Trust, one of three portfolios that he manages, has been the top performer of its sector over the last few years.
Train’s strategy for the trust is simple. Buy “excellent listed companies that appear mostly undervalued” with the intention of beating the return of the FTSE All-Share Index. He looks to do this through a concentrated, high-conviction portfolio of around 30 stocks.
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Perhaps the most important aspect of the strategy is its very low turnover rate — an approach also followed by peer Terry Smith. When Train puts money to work, it’s usually worth paying attention. And that looks to be exactly what he’s just done.
Yesterday afternoon, it was strongly rumoured the fund manager had made his first UK-listed purchase for an astonishing nine years by taking a stake in soap maker PZ Cussons (LSE: PZC) — owner of brands such as Imperial Leather, Sanctuary Spa and Original Source.
If true, the fact Train has decided to buy a slice of PZ makes sense. Based on its November factsheet, very close to half of the trust’s portfolio is made up of stocks from the consumer goods sector with Unilever, Burberry and Diageo three of its largest holdings.
Notwithstanding, the addition of PZ is intriguing when it’s considered Train very recently bemoaned the lack of valuable UK brands, stating that many had previously been sold off too early to foreign buyers.
It looks like he’s had a change of heart. The question is, should Foolish investors follow his lead?
To say PZ Cussons is having a difficult time of late is putting it mildly. Problematic trading in Nigeria — one of its biggest markets — has contributed to the shares halving in value in roughly 18 months. Taking last week’s trading update for the six months to the end of November into account, a recovery still looks some way off.
Despite growing market share in the UK, US and Indonesia, the business saw falls in revenue and operating profit compared to over the same period in 2018. On top of this, CEO Alex Kanellis announced he will be leaving with a decision on his replacement not expected until mid-2020.
Of course, you might say PZ’s predicament is already factored into its price. Right now, the shares trade on just under 15 times earnings — cheaper than other defensive consumer goods giants such as the aforementioned Unilever and Reckitt Benckiser (on 19 times and 18 times earnings, respectively).
Aside from value, it’s also worth highlighting PZ’s income credentials. The company is expected to return a total of 8.31p per share to its owners this year. At the current share price, that gives a yield of 4.6%, covered 1.5 times by profits — decent income for those prepared to wait things out.
While not all of his picks have been winners (education product supplier Pearson being an example), it would be brave to bet against Train. Assuming management’s attempts to restructure the company prove successful, there are no further setbacks in key markets, and a new CEO is able to hit the ground running, his decision to buy PZ may be inspired. It’s on my watchlist for now…